Key Points

  • At their most basic, ad exchanges work to connect publishers and advertisers within a digital marketplace through programmatic advertising.
  • On the more technical side, ad exchanges interface with various other ad tech tools to facilitate auctions.
  • The technical process is less important than the outcome: ad revenue for you.

For many publishers, ad exchanges are a key part of their revenue strategies. But very few know how an ad exchange works. That's understandable - after all, how exchanges work is less important than what they do: bring in ad revenue for publishers.

We don't have to understand how jumbo jets work in order to fly on them, but perhaps having at least a little understanding of how they work gives us the ability to trust that they'll work for us. That applies to ad exchanges, too. As you do for any other part of your ad tech stack, you need to understand at least the basics of how an ad exchange works if you're going to entrust one with selling your advertising inventory.

This post will help with that. Below, the Playwire team walks you through the basics of how ad exchanges facilitate programmatic ad buying and selling.

It's helpful to understand the ways ad exchanges and other pieces of ad tech work, but the main point is to make sure your revenue keeps climbing. Playwire has that more than covered. Contact us.

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Ad Exchange Guide

Ad Exchanges: The Complete Guide for Publishers

The Basic Function of Ad Exchanges

The basic function of an ad exchange is to provide a marketplace where advertisers and publishers can buy and sell digital advertising. This is usually done programmatically, which means it's highly automated.

Publishers funnel their digital ad inventory - in other words, their users' impressions - into the ad exchange marketplace, and advertisers bid on each individual ad impression. The ad exchange facilitates that auction and takes a small cut of each dollar that flows through the system.

The Specifics of How Ad Exchanges Work

That was the most basic way to explain how ad exchanges work. Now, let's get down to a more granular level. Here's how ad exchanges work in seven key steps.

1. Publishers Set the Rules

Before any programmatic auctions take place inside the ad exchange, participating publishers set the rules for how their inventory will be auctioned off. The most important parameter is your price floor - the minimum amount for which a bid can claim one of your impressions. There are other rules to consider, though, including preferred advertisers on preferred exchanges and various creative style factors within your ad space.

2. Users Trigger Auctions

With your auction rules set, you're ready to start selling your inventory on the exchange and bringing in more revenue. Each auction is triggered by a user visiting your website or app. Before the site or app loads, the user triggers an auction. That trigger travels through your chosen supply-side platform (SSP) and into the ad exchange (which is usually a part of the SSP).

3. Exchanges Call for Bids

When the ad exchange receives an impression through your SSP, it then sends out a call for bids on that impression. That call travels to the various demand-side platforms (DSPs) advertisers and agencies are using to connect to the exchange. 

4. DSPs Evaluate Impressions

The DSPs receive the call for bids and begin analyzing the impression at stake. That involves evaluating the ad impression against various ad campaign metrics set by the individual advertisers. These metrics might include several hundreds of potential variables, including demographic information, location, publisher ad inventory type, ad format, ad placement, vertical and more.

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Ad Exchange Resource Center

Check out all the available resources in the Complete Ad Exchange Resource Center

5. DSPs Make Bids

Should the impression meet the qualifications set by an advertiser, the DSP will issue a bid on it. The DSP sends that bid to the ad exchange. This process may be repeated across different advertisers and DSPs hundreds of times, and all of the bids are sent to the exchange.

6. Ad Exchanges Select the Best Bid

The ad exchange then gets to work evaluating all of the bids that came in based on the parameters you set before this process began. Many of the bids may not meet all of the requirements, but it's often the case that a good number of them will. Of those, the ad exchange will select the "best" bid, which is almost always going to be the highest bid.

7. The Ad Server Serves the Winning Ad

With the winning bid chosen, the ad exchange then notifies the relevant parties and sends the bid information to the appropriate ad server. The ad server then retrieves and serves the related creative on your website or app.

Just marvel at this for a moment: That seven-step process occurs in the milliseconds between when a user initiates a load of your site or app and when the site or app actually loads. And the process can be repeated hundreds of times in a given second.

Making Ad Exchanges Work for You

How an ad exchange works is less important than whether the ad exchange works for you. Simply connecting a bunch of ad exchanges with your ad inventory is not going to guarantee that your revenue is at maximum. 

If you're looking for that kind of reassurance, you need to work with a partner like Playwire. Using our proprietary revenue amplification platform, we ensure that our publishers' revenue is not just steady but always trending up. Ad exchanges are often a part of that strategy, of course, but this offering is much more comprehensive than that.

Ready to learn more about how Playwire can help you? Reach out today.

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